3/05/2010 @ 2:53PM

Building Organizational Capabilities: McKinsey Survey Results

Nearly 60% of respondents to a recent McKinsey survey say that building organizational capabilities such as lean operations or project or talent management is a top-three priority for their companies. Yet only a third of companies actually focus their training programs on building the capability that adds the most value to their companies’ business performance.

We defined a capability as anything an organization does well that drives meaningful business results. The survey explored which capabilities are most critical to a company’s business performance and why they focus on the capabilities they do. It also asked executives how their companies create and manage training and skill-development programs and how effective those programs are in maintaining or improving on their priority capabilities.

It’s notable that the majority of companies don’t focus on a specific priority capability for purely competitive reasons; most often, the reason is that the capability is part of their culture. Further, some three quarters of respondents don’t think their companies are good at building the capability that is most important. When senior executives are involved in setting the capabilities agenda, companies are more successful at aligning those agendas with the capability most important to performance and more effective at building the needed skills.

A strategic priority

Companies can gain a competitive advantage by building foundational capabilities such as lean operations and project management or industry-specific capabilities such as merchandising or underwriting. Indeed, executives say building capabilities is a top priority for their companies: 58% of respondents say it’s among their companies’ top three priorities, and 90% place it among the top 10.

Even in the context of the current financial crisis, 29% of respondents say their companies have not changed their training budgets; 11% have actually increased them.

Notably, however, the most common reason respondents give for their companies’ focus on the capability identified as most important to business performance is that the skill is a part of their companies’ culture, rather than any competitive reason.

Lack of alignment

Despite the importance of capability building on the strategic agenda, executives’ responses indicate they’re not very good at executing: Only about a quarter think their companies’ training programs are “extremely” or “very effective” in preparing various employee groups to drive business performance or improve the overall performance of their companies.

The survey results also indicate a potential explanation: Training programs are misaligned with what is thought to be the capability most important to a company’s business performance. Only 33% of respondents say their training and skill development programs focus on developing their companies’ most important capability.

Leadership skill, for example, is considered by the majority of respondents to be the capability that contributes most to performance. Yet only 35% of respondents say they focus on it. And only 36% of executives consider their companies better than competitors at leadership development.